Notes and ideas on mass customization, personalization, customer co-creation, and open innovation -- strategies of value co-creation between organizations and customers. This blog continues a long running newsletter, published and edited by Frank Piller, RWTH / MIT, since 1997.

October 12, 2010

Term wars: Personalization versus Mass Customization -- A review of the definitions

In the last days, I have been drafting a chapter on mass customization for an upcoming book on customer-centric supply chain management. As part of the endeavor, I also was looking into the long, apparently never-ending debate on the difference between mass customization and personalization.

So: Is this the same, something fundamentally different, or something in between?

The starting point for mass customization and personalization fundamentally is the same: To turn customers’ heterogeneous needs into a competitive advantage. Or, as Bas Possen, a Dutch mass customization pioneer states his as the vision of his company (customax.com): "In general, too little use is made of the advantage that all people are different."

Bruce Kasanoff provided a good definition of personalization during his keynote at the MCPC 2009 conference in Helsinki:

"After years of trying to simplify [the definition of] personalization, I finally got it down to two words: Personal = Smarter. The more you customize, the smarter you get. The smarter you get, the more competitive you become. It really is that simple. Doing it, of course, takes a lot of work."

According to Bruce's definition, personalization is using technology to accommodate the differences between people. Done right, it's a win/win strategy for providing a better outcome for both the service provider and the individuals involved.

For example, if a doctor gives a patient a test to determine which treatment will work best for her before the treatment starts, that's personalization. Likewise, if a company gives their clients the option to tell their service center when and how to contact them, that's also personalization.

Mass customization then could be seen as a process for implementing personalization.

Stan Davis, who initially coined the term in 1987, refers to mass customization when

“the same large number of customers can be reached as in mass markets of the industrial economy, and simultaneously […] be treated individually as in the customized markets of preindustrial economies”.

B. Jospeh Pine II then defined mass customization in his 1993 seminal book as

“providing tremendous variety and individual customization, at prices comparable to standard goods and services” to enable the production of products and service “with enough variety and customization that nearly everyone finds exactly what they want”.

A pragmatic definition was introduced by Mitchell Tseng and Roger Jiao (2001). According to them, mass customization corresponds to

“the technologies and systems to deliver goods and services that meet individual customers’ needs with near mass production efficiency.”

Often, the mass customization definition is supplemented by the proposition that the individualized goods do not carry the price premiums associated traditionally with (craft) customization. However, we found that consumers are frequently be willing to pay a price premium for customization that reflects its increment of utility. Hence, I today opt for not including a price proposition into the definition of mass customization.

Also, mass customization does not demand lot sizes of one. Custom products can be produced in larger quantities for an individual customer. This frequently happens in industrial market, when, for example, a supplier provides a custom component that is integrated in a product of the vendor.

Indeed, one of the biggest lessons from my past research is that there is no one best way to mass customize. Take, for example, the widespread belief that mass customization entails building products to order -- a belief that also I followed for a long time. But today I agree that this is not necessarily true.

Customers are looking for products that fit their needs, and they do not necessarily care whether those offerings are physically built to their order or whether those items come from a warehouse – just as long as their needs are fulfilled at a reasonable price.

Consider, for example, the success of style-matching services like MyVirtualModel, Zafu, or Intellifit: These services provide consumers with a customized assortment fitting exactly their needs – created out of a set of standard apparel items. Or take the example of Pandora Radio. Every user of this internet radio station will praise its ability to customize a really individual stream of music, different for any particular user. Pandora creates a custom music delivery system by matching standard songs to a user's preferences.

So: Are these examples personalization or mass customization? Both? In some respects, personalization is a goal and mass customization is the way to accomplish that goal. Mass customization means to create processes and capabilities for aligning an organization with its customers’ needs.* The resulting offering may be called a "personalized" offering from the perspective of the customer.

But we need to be careful about defining or debating semantics. Both personalization and mass customization push a company towards being more responsive to the marketplace and thus being more nimble. Both result in a firm that can react faster and more effectively to volatility. Both enable a company to build defendable competitive advantages, because both require a firm to track, understand and accommodate the needs of its customers.

In the end, it is not the term, but the result and value created by applying these concepts. The core point I want to make here is that mass customization should not be seen as a dedicated business model or a specific form of competitive strategy.

*Note:In our last year's paper in the MIT SMR, Fabrizio Salvador, Martin de Holan and I introduced three fundamental capabilities which characterize mass customization: The ability of an organization to identify the product or service attributes along which customer needs diverge (solution space definition), the ability to reuse or recombine existing organizational and value-chain resources (robust process design), and the ability to help customers identify or build solutions to their own needs (choice navigation).

Comments

The difference between mass-customization & personalization is that mass-customization is template based, whereas personalization is based on a blank-canvas. Personalized products are made from the bottom-up, and mass-customization is top-down production (the template is the top).

I think its worth pointing out that 'mass' is the operative word here, and anytime something is produced on a massive scale, standards are advantageously followed. These standards by nature disqualify the product from being 100% personalized. In personalization, there are no standards.

It seems to me that the issue is that the subject of the two words or concepts is not the same. Personalization addresses a person, while mass customization addresses a process. When dealing with these concepts abstractly it's very easy to confuse the subject. However, when designing, this difference is critical to understanding who and what has to be designed/addressed.

Thanks Frank for this insightful differentiation between purpose and method(ology). I think that by differentiating these two it is easier to achieve clear definitions.

However, in B2B markets supplying capital goods the term personalization is not very suitable. Customization is much more understandable term in B2B markets. Thus, personalization could be synonym for customization when the end customer is an individual person and customization used when its not..?

However, neither personalization nor customization as a concepts require efficiency of production/supply, and thus, mass customization is just a method (or since a quite large assemble of different methods, a methodology) to produce customization and/or personalization in a cost efficient way.

In the UK, personalisation has become quite politicised, and the term is losing favour with the change of government when talking about public services. This is a shame. Interestingly, we are therefore seeing increasing talk about customizing services to the public.

At the same time, I've just finished a large project about personalised learning. People find this concept very difficult to understand. But by comparing current education to mass production, and home schooling to customization, we can talk easily about the middle group being mass customization, which everyone understands. The father of the concept of personalised learning in the UK, David Hargreaves, actually described it as an educational version of mass customization.

Hi, Frank,
We have been mesmerizing about the issue of personalization lately. We published a paper on Design for Mass Personalization (2010) by
M.M. Tseng, R.J. Jiao, C. Wang, 59/1/2010, P.175-179, CIRP Annals. I would be happy to send you a copy. We continue working this interesting angle.

Not sure if Kumar's definition makes sense, because personalization is about meeting the customers desires - without having to create (through advertisements) it and get the customer to pay for it. That was the old world, manufacture and market paradigm. There may be a fundamental flaw in associating personalisation with marketing.

Thanks Frank for these very interesting and useful reflections.
One other distinction that I've often found useful is between cases in which customers are passive in the individual value creation process versus cases in which they are active participants. For example, many cases of personalization can be done without direct customer interaction (e.g., on the basis of collaborative filtering such as Amazon's book recommendations), while other cases such as mass customization require well-developed customer interfaces, to allow for customers to co-create their own products (e.g.,Ponoko, Threadless t-shirts). This decision to make customers passive versus active process participants typically has strong consequences for content, channels, and supply chain design.

I am thinking of another way of differenciating the two concepts, which was proposed by Ashok Kumar in 2008 : he stated that mass personalization is marketing to ONE, whereas mass customization is marketing to FEW (From mass customization to mass personalization: a strategic transformation, International Journal of Flexible Manufacturing Systems, 19, p. 533-547). This is an interesting distinction, and goes in the same way than what you are proposing.